Personal Finance - Chapter 8
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36 terms
Terms | Definitions |
|---|---|
 Holdback | In auto sales, an amount of money, generally in the 2 to 3 percent range, that the manufacturer gives the dealer on the sale of an automobile. |
| Closed-End Lease or Walk-Away Lease | A vehicle lease in which you return the vehicle at the end of the lease and literally walk away from any further responsibilities. You need merely bring the vehicle back in good condition with normal wear and tear, and the vehicle dealer assumes the responsibility for reselling the vehicle. |
| Purchase Option | An automobile lease option that allows you to buy the car at the end of the lease for either its residual value or a fixed price that is specified in the lease. |
| Open-End Lease | An automobile lease stating that when the lease expires, the current market value of the car will be compared to the residual value of the car as specified in the lease. |
| Cooperative or Co-op | An apartment building or group of apartments owned by a corporation in which the residents of the building are the stockholders. |
| Homeowner's Fee | A monthly fee paid by shareholders to the cooperative corporation for paying property taxes and maintaining the building and grounds. |
| Condominium (Condo) | A type of apartment building or apartment complex that allows for the individual ownership of the apartment units but joint ownership of the land, common areas, and facilities. |
| Planned Unit Developments (PUDs) | A development where you own your own home and the land it sits on, but you share ownership of the development with your neighbors and pay a homeowner's fee for common expenses and maintenance. |
| Down Payment | The amount of money outside of or not covered by mortgage funds that the homebuyer puts down on a home at the time of sale. |
| Closing or Settlement Costs | Expenses associated with finalizing the transfer of ownership of the house. |
| Points or Discount Points | Charges used to raise the effective cost of the mortgage loan, which must be paid in full at the time of the closing. |
| Loan Origination Fee | A fee of generally one point, or 1 percent of the loan amount, its purpose is to compensate the lender for the cost of reviewing and finalizing the loan. |
| Loan Application Fee | A fee, generally in the $200 to $300 range, that is meant to defer some of the processing costs associated with the loan. |
| Appraisal Fee | A fee for an appraisal of the house, which is generally required before a mortgage loan is approved. Although the cost varies depending on the size and locatioin of the house, it can easily run between $200 and $300. |
| Title Search | An investigation of the public land records to determine the legal ownership rights to property or a home. |
| PITI | An acronym standing for the total of your monthly principal, interest, taxes, and insurance. |
| Escrow Account | A reserve account in which funds are deposited, generally on a monthly basis, and accumulate over time until they are drawn out to pay property taxes and insurance. |
| Mortgage Banker | Someone who originates mortgage loans with funds from other investors, such as pension funds and insurance companies, and services the monthly payments. |
| Mortgage Broker | A middleman who, for a fee, secures mortgage loans for borrowers but doesn't actually make those mortgage loans. Mortgage brokers will find the best loan available for the borrower. |
| Conventional Mortgage Loan | A loan from a bank or S&L that is secured by the property being purchased. |
| Government-Backed Mortgage Loan | A mortgage loan made by a traditional lender, but insured by the government. |
| Assumable Loan | A mortgage loan that can be transferred to a new buyer, who simply assumes or takes over the mortgage obligations. Such a mortgage saves the new buyer the costs of obtaining a new mortgage loan. |
| Prepayment Privilege | A clause in a mortgage allowing the borrower to make early cash payments that are applied toward the principal. |
| Adjustable-Rate Mortgage (ARM) | A mortgage in which the interest rate charged fluctuates with the level of current interest rates. The loan fluctuates, or is adjusted, at set intervals (say, every year) and only within set limits. |
| Initial Rate | The initial rate charged on an ARM, sometimes called the teaser rate. This rate holds only for a short period, generally between 3 and 24 months, before being adjusted upward. |
| Negative Amortization | A situation in which the monthly payments are less than the interest that's due on the loan. As a result, the unpaid interest is added to the principal, and you end up owing more at the end of the month than you did at the beginning of the month. |
| Balloon Payment Mortgage | A mortgage with relatively small monthly payments for several years (generally five or seven years), after which the loan must be paid off in one large balloon payment. |
| Graduated Payment Mortgage | A mortgage in which payments are arranged to steadily rise for a specified period of time, generally five to ten years, and then level off. |
| Growing Equity Mortgage | A conventional 30-year mortgage in which prepayment is automatic and planned for. Payments begin at the same level as those for a 30-year fixed-rate mortgage and then rise annually - generally increasing at between 2 and 9 percent per year - allowing the mortgage to be paid off early. |
| Shared Appreciation Mortgage | A mortgage in which the borrower receives a below-market interest rate in return for which the lender receives a portion of the future appreciation (generally between 30 and 50 percent) in the value of the home. |
| Interest Only Mortgage | A mortgage with interest only payments for an initial set period (e.g., for 5 years on a 30-year loan) and after this period the borrower pays interest and principal with payments adjusted upward to reflect full amortization over the remaining years of the loan. |
| Private Mortgage Insurance | Insurance that protects the lender in the event that the borrower is unable to make the mortgage payments. |
| Independent or Exclusive Buyer-Broker | A real estate agent hired by the prospective homebuyer who exclusively represents the homebuyer. Such brokers are obligated to get the buyer the best possible deal and, in general, are paid by splitting the commission with the seller's agent. |
| Earnest Money | A deposit on the home purchase to assure the seller that the buyer is serious about buying the house. |
| Closing | The time at which the title is transferred and the seller is paid in full for the house. At this time, the buyer takes possession of the house. |
| Settlement or Closing Statement | A statement listing the funds required at closing, which should be furnished to the buyer by the real estate broker at least one business day before closing for review. |
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